Asymmetric impact of Oil Price and Domestic Liquidity on inflation in Egypt: Empirical Evidence from NARDL Model

Document Type : Original Article

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Faculty of Economic Studies and Political Science, Alexandria University, Egypt.

Abstract

This paper investigates the asymmetric impact of oil price and domestic liquidity on inflation rate in Egypt. The nonlinear autoregressive distributed lag (NARDL) model is employed using annual time series data from 1960 to 2021. The findings show statistically significant evidence in favor of the existence of a long-run cointegrating relationship between the variables. In addition, the estimated model reveals the existence of a nonlinear effect of crude oil price on inflation in the long-run. In particular, the increase in the crude oil price is significant in causing an increase in inflation, while the influence of negative changes of crude oil price is not significant. In the short-run, the results reveal insignificant differences in the response of inflation to positive and negative changes of oil price. Moreover, the results show insignificant differences in the response of inflation to positive and negative changes of domestic liquidity in both the short- and the long-run. Last, the evidence of asymmetry might be crucial for more effective policymaking.

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